Chance at software patent reform through the courts dies with it

Microsoft didn't just lose its Supreme Court appeal to overturn its long-running i4i patent infringement case, it was trounced. The Justices voted unanimously in favor of i4i, once again kicking court-based software patent reform in the gut. And yet, there is still a glimmer of hope that the ruling will make it easier to invalidate bad patents.

"This case raised an important issue of law which the Supreme Court itself had questioned in an earlier decision and which we believed needed resolution," a Microsoft spokesperson told Network World via an e-mail exchange. "While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system and protect inventors who hold patents representing true innovation."

Microsoft wanted the high court to lower the standard of proof required to overturn a patent. The change would have made it easier to overturn so called "bad" patents, an abundance of which plague the software industry. But it also potentially would have made it easier to overturn any patent.

While the court didn't buy it, some of the opinion issued by individual Justices on Thursday could still make it easier to overturn patents, says David Long, a patent attorney at Dow Lohnes PLLC. "The Supreme Court decision in general is no surprise, but it will have some huge ripples. The Supreme Court increased the jury's role to weigh what the Patent Office did and did not consider in granting the patent. And Justice Breyer's concurrence goes further as to the detail of the jury verdict and may make it easier to invalidate patents."

Justice Breyer wrote, "Courts can help to keep the application of today's 'clear and convincing' standard within its proper legal bounds by separating factual and legal aspects of an invalidity claim say, by using instructions based on case-specific circumstances that help the jury make the distinction ... By preventing the 'clear and convincing' standard from roaming outside its fact-related reservation, courts can increase the likelihood that discoveries or inventions will not receive legal protection where none is due."

Microsoft's case rested on a couple of ideas. It argued that i4i sold the technology prior to submitting it for a patent and that the validity of the patent should also be questioned because i4i "never gave the source code for the product and didn't have it available at trial making for "a compelling case why it doesn't make sense to give this deference to the patent office ... they never had the source code," Andy Culbert, associate general counsel at Microsoft, previously told Network World. I4i chairman, Loudon Owen, called Microsoft's argument "utter nonsense" adding, "It is incorrect and it is another unsubstantiated Microsoft allegation/declaration to say i4i sold their product and did not patent the invention within the one-year time limit. This is wrong."

The court seemed to agree with i4i, rejecting Microsoft's arguments. In the court opinion issued today, the Justices summarize their reasons for rejecting Microsoft's argument: "According to Microsoft, a defendant in an infringement action need only persuade the jury of an invalidity defense by a preponderance of the evidence. In the alternative, Microsoft insists that a preponderance standard must apply at least when an invalidity defense rests on evidence that was never considered by the PTO in the examination process. We reject both contentions. ... Our pre-1952 cases never adopted or endorsed the kind of fluctuating standard of proof that Microsoft envisions."

In 2007, i4i sued Microsoft for infringement over a method of parsing XML called "custom XML". Microsoft typically tries to settle such cases, and tried to settle this one, too. On May 20, 2009, i4i won a $290 million judgment against Microsoft, which included an injunction to stop selling Word. Microsoft has long since removed the technology from Word but continued to fight i4i, believing that this was a weak patent that should never have been granted. Microsoft tried various methods of getting i4i's patent invalidated, to no avail. Microsoft twice sought an administrative reexamination by the USPTO of the patent, and the USPTO upheld its validity both times.

As the battle escalated to a Supreme Court case, the software industry jumped on board, viewing this case as another chance to institute software patent reform, making some strange bed fellows arguing in favor of Microsoft's patent defense claims. Microsoft accrued about 20 amicus briefs, which represent about 60 companies and individuals, including Google, Apple, Cisco, Intel, Red Hat, the Electronic Frontier Foundation and 37 law and economics professors.

In the other corner, was i4i, also with about two dozen amicus briefs in its corner, representing more than 100 companies, organizations and individuals, including the U.S. government, individuals from the military, and venture capitalists.

The court on Thursday noted that "Microsoft and its amici contend that the heightened standard of proof dampens innovation by unduly insulating 'bad' patents from invalidity challenges. They point to the high invalidation rate as evidence that the PTO grants patent protection to too many undeserving 'inventions.'" The Microsoft crowd also claimed that invalidating a patent through the PTO was difficult in that the PTO has strict reasons to invalidate a patent and some evidence cannot be considered.

In contrast, i4i and its amici, said a high standard of proof was important for the "patent bargain" in which an inventor agrees to reveal its secret sauce in exchange for protection of that secret with a patent.

After all those briefs, the court refused to rule on the policy issue. It would leave that for Congress should it choose to change the law. The court contended that Congress has already been tweaking the laws to try and make it harder for bad patents to be granted, or for them to withstand a PTO review.

Owen says in a statement issued Thursday, "Microsoft tried to gut the value of patents by introducing a lower standard for invalidating patents. It is now 100% clear that you can only invalidate a patent based on 'clear and convincing' evidence. This is one of the most significant business cases the Court has decided in decades. Affirmation of the Federal Circuit on a ruling in favor of patent holders is virtually unprecedented. While this ruling maintains the prevailing standard, the innovation community must be ever‐vigilant to defend its property rights."

Most software companies disagree. Patents and infringement lawsuits have become a big burden to the software industry, and with this ruling, hope that the Supreme Court would do something to solve these problems. Hope for a solution to the software patent problem had previously been put on the Bilski case, which could have all but eliminated the problem if the Supreme Court had issued a ruling that made "business process" patents difficult or impossible to obtain. Most software patents fall into the "business process" category. The Supreme Court's ruling on Bilski, however, managed to sidestep that issue and create more confusion, not less.

The case has cost Microsoft a pretty penny. i4i notes, "As a result of this decision, i4i has won its patent infringement case against Microsoft. At trial the jury ruled in favor of i4i and awarded $200 million in damages (now upwards of $300 million with enhancements and interest)."